Paladin buoyed by China expansion

Australian uranium producer
Paladin Energy
expects to secure contracts to supply fuel to China’s second-largest builder of nuclear power plants as the country looks to increase generation fourfold by 2015.

Paladin signed a memorandum of understanding with nuclear giant China Guangdong Nuclear Power Holding in August 2010 and the company’s chief executive,
John Borshoff,
told The Australian Financial Review he expected to sew up a supply deal.

“We expect to supply them material. China will eventually need 44 million pounds of uranium a year and Guangdong will require around 60 per cent of that amount," he said.

Mr Borshoff said the final amount of any contract was to be determined and would depend on the level of fuel required for the Chinese company’s strategic and operational inventories.

“They really need a year-and-a-half of inventories operationally and they need three years-plus of strategic inventories, so that is an opportunity," he said.

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Mr Borshoff said the development of a supply deal has been delayed by the fallout in the industry from Japan’s Fukushima nuclear disaster.

“We will have customer relationships with Guangdong but they have been affected in the last three months [after Japan’s Fukushima incident], so they have been re-auditing all of their plants. Now they are coming back to business and we are talking to them about a customer relationship."

Mr Borshoff said the priority until now for Guangdong has been bedding down its majority stake in Australian junior uranium explorer Energy Metals. Paladin and Energy Metals are working together in a joint venture to develop the Bigrlyi uranium and vanadium project, 350km north-east of Alice Springs.

“They [Guangdong] have engaged and have their people [at Bigrlyi] and obviously that joint venture and how it was operated was a very important part of our relationship. Now we can look at developing that further."

The Chinese company had wanted to trim its offer price for Kalahari citing the impact of the Fukushima disaster, which triggered a slump in global uranium equity prices.

However, UK regulatory rules prevented a reduction in the offer price, causing the Chinese company to drop its bid for at least three months before it could return with a new offer.

China Guangdong, which is constructing one of the largest nuclear power plant programs in the world, has been looking to ramp up supply deals in the past 12 months with control over potential uranium supplies vital to its expansion ambitions.

The state-owned firm has about 20,000 megawatts of nuclear capacity under construction and expects to have more than 50,000 MW on line by 2020. China has 14 nuclear power reactors in operation, 26 under construction and 172 proposed, according to the World Nuclear Association.